This week’s guest blog comes from Joe Pleshek, the CEO of Terso Solutions. Enjoy it!
I met a business journalist recently who spent a fair amount of time covering the private equity and venture capital markets. The writer explained to me that he was shocked to learn how prevalent venture funding was upon first entering that business.
Indeed, venture and private equity funds are seemingly everywhere, backing small and risky start-up companies that could be the next Google or Apple, to funding major mergers and buyouts of established companies. When you really look at it, venture funding is everywhere.
Terso Solutions CEO Joe Pleshek
I couldn’t help but draw a parallel to the RFID industry. Unless you are heavily involved in the industry, one probably doesn’t realize how deeply RFID is infiltrating business on a global basis.
Wherever you look, RFID is either already established or well on its way to becoming ubiquitous. The retail sector is the obvious poster child for RFID. The technology is giving retailers new visibility into supply chain and inventory that was never possible before.
Retailer American Apparel even touted the technology as a major portion of its turnaround plan when it announced its quarterly earnings this month. The retail chain currently operates with a 99.8 percent inventory accuracy rate at its 125 RFID-enabled stores, and credits the technology with increasing in-store sales.
But RFID is also playing a strong role in automotive, construction and mining, finance, transportation and medical and healthcare. RFID is even making its presence known in the entertainment sector, where RFID-enabled wristbands allow for seamless entry into concerts and sporting events. Often, those wristbands are pre-loaded with cash, making for a flawless purchasing experience and eliminating long lines at the beer tent.
According to the National Venture Capital Association, venture backed revenue accounts for 21 percent of the US GDP. The NVCA reports that venture firms invested just over $29 billion in U.S. firms in 2011 alone. By comparison, research firm IDTechEx puts the value of the worldwide RFID market at $7.46 billion in 2012, up from $6.37 billion in 2011. While that represents a fraction of the total venture capital spend, RFID’s value to industry could be much higher.
It’s difficult to get a true read for the value of RFID, as so many companies are secretive about their deployments and fearful of discussing the benefits that they view as providing a strong competitive advantage. But it’s safe to say that thousands of companies (and likely many more) are either saving millions from operational gains resulting from their RFID deployments, or selling millions more worth of product by having more inventory on the shelf when needed.
Just look at our parent company, Promega, which has saved more than $1.7 million by deploying RFID-enabled freezers and refrigerator solutions into its daily operations. Prior to deploying RFID freezers and storage cabinets from Terso Solutions (which is owned by Promega), the company lost approximately 15-18 percent of its on-site inventory to shrinkage, worth about $1.2 million per year. By deploying an RFID-enabled storage system for managing on-site inventory, Promega has virtually eliminated product shrinkage in the field. In addition, Promega wrote off about $400,000 of expired products each year because the company had no visibility into expiration dates on-site. Because of the product visibility allowed by the RFID storage system for on-site stocking, this expense has been virtually eliminated.
Lastly, most of the products that Promega offers to its customers need to be frozen. Prior to deploying RFID freezers, Promega had no control over how products were stored, and had no ability to monitor temperature. By deploying RFID-enabled freezer units, Promega has avoided $100,000 in write-offs each year due to product spoilage.
The Promega story is just one company operating in one region of the U.S. These stories come from all corners of the country and all parts of the globe. In many cases the payoff doesn’t match the $2 million a year that Promega is saving. But more often than not, the ROI from deploying RFID dwarfs our $2 million in savings.
Of course, we’re only discussing the monetary benefits from RFID here. There are also hundreds of use cases in healthcare alone that go a long way toward improving the quality of life for patients receiving cancer treatments, or for residents of poverty stricken regions where RFID is being embedded into health ID cards to better track health records for patients. Clearly, it is impossible to affix a dollar value to the humane benefits achieved from RFID.
As RFID becomes embedded into more and more manufacturing processes and products, the term RFID might actually go away. After all, how much chatter do you hear about the trusty barcode each day?
And while the RFID acronym might become commonplace in everyday life and take a back seat in the press and in the boardroom as CIOs look for the next big thing, the savings that the technology delivers will continue to be breathtaking.